Q2 2020 Coca-Cola Femsa SAB de CV Earnings Call
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Hello.
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The conference call at this time, we are currently.
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We appreciate your patience.
[music].
Hey, good morning, everyone else.
Well it sounds that second quarter 2020 conference call.
As a reminder, todays conference is being recorded an all participants are in listen only mode.
The company, we will open up the conference for questions.
Presentation.
During this conference call management.
Forward looking statements concerning Coca Cola FEMSA future performance.
That's good.
The company.
Forward looking statements reflect management's expectations.
Upon currently available.
Actual results are subject to future.
Which can materially impact companies actual performance.
At this time I'd like to turn the conference over to Mr. John.
Coca Cola FEMSA Chief Executive Officer. Please go ahead Mr. Santa Maria.
Thank you good morning, everyone.
Thank you for joining yesterday to discuss our second quarter results.
I Hope you know your loved ones are safe and well.
Constantino spots or Chief financial Officer.
Okay Cool JASO head of our industrial relations and not Diaz Molina, our head of strategy are also on the call today with me.
Before discussing our results for the quarter I would like to take a moment to express or solidarity with all of the people who have been affected by the cobot 19 pandemic.
And our most since your gratitude to the health care community Central workers that are fighting against this globally and specifically in our country.
Importantly, I want to express my recognition to all of our Coca Cola FEMSA employees.
I'm waiver and dedication.
Our team has risen to the occasion and it's delivering outstanding service to our clients.
Pretty much.
And ensuring our business continuity in product supply accelerating our transformational initiatives watch important communities indeed.
During our call today, well not only address our second quarter results. What also update you on the mitigation actions and come back.
As well as your early signs of recovery that we are seeing across our markets.
Then I will close with additional insights on our omni channel capabilities.
Finally comes down do you know will expand on each divisions results.
Provide you with inadequate.
On our financials I'm, just weren't Coca Cola FEMSA solid cash flow generation and strong balance sheet.
The resiliency of our business, coupled the deployment of market strategies and mitigation actions enabled us to deliver better than expected results in the face of unprecedented operating challenges.
Consolidated volumes declined 7.2% for the quarter, driven mainly by the implementation of mobility restrictions across our territories.
During our previous conference call. We described the mid teens consolidated volume declines pick them up for vehicle.
Remain certain territories were gradually transitioning to partial lockdown, resulting a sequential volume improvements that was driven mainly by a recovery in Brazil.
The positive overall trend continued in June as clients reopening allowed for improvements are close markets categories channels and packages.
In the basin such complexity. It is important to highlight the resilient overall performance of our core operations in both Mexico and Brazil.
Which borrowings declined mid single digits for the quarter.
And also our guatemalans operation, which continued to grow versus prior year during the same period.
Our total revenues declined 10.2 person driven mainly by price mix headwinds coupled with unfavorable currency translation effects from most of our operating currencies in South America.
These effects were partially offset by our pricing rather than new management initiatives and keep margins.
On a comparable basis, removing currency translation effects, our top line would have decreased 8.6%.
Yeah first of all price mix effect was driven mainly by increased demand for multi serve presentations across our markets that's consumption occasions lean towards at home consumption.
We expect this effect to gradually normalize as markets, especially the on premise channel continues to gradually reopened.
Our operating income declined 19.1 person has decreased she'd be feed costs and operating efficiencies were offset by the unfavorable price mix effect.
The reduction of tax credits on concentrated in Brazil.
Hi, concentrate costs in Mexico, and the depreciation and most of our operating currencies as compared with the U.S. dollar.
On a comparable basis, our operating income would have decreased 17.6%.
Well the quarter foreign exchange impacts on our operating income you made significant accounting for more than 360 million best.
To give you a broader sense of our ability to mitigate the Texas gold at 19 on the operating income.
We estimate is an approximate impact before mitigation actions of 3.9 billion Pepsico during the quarter, mainly driven by volume declines and price mix headwinds.
However, our countermeasures, coupled with favorable raw material trends enables us to offset approximately 3.4 billion buses are these headwinds.
Affected any mitigating more than 85 person on the gross impact.
Notably thanks to these counter measures in the face of accordance complexities are operating cash flow margin remains flat versus the previous year at 19.1%.
Finally, our controlling net income increased or decreased 39.4% year over year, driven mainly by impairments to our study Israel dairy joint venture in Panama and hourly off now Noncarbonated beverage joint venture in Brazil.
If I normalize going to controlling that income excluding these impairments our earnings per share would have declined only 18%.
Well, we continue to operate under a high level uncertainty in some markets worldwide have reversed or delayed reopenings.
Based on current or World trends, we continue to expect our second quarter results to be the most impacted quarter over a year.
Moving onto an update on our strategies mitigation actions and come back problems.
As we noted during our first quarter conference call, we developed and implemented a framework comprised of five key areas.
What I call, the five sees which comprise collaborators clients consumers communities and cash flow.
Our priorities are clear.
We are guiding our business to short term operating disruptions, while ensuring execution to our long term schools.
First we continue to focus on the health and wellbeing of our employees above anything else, our reinforce help sanitation them hygiene protocols and a rapid deployment of protective equipment group consensual for our busy business continuity.
Today, many of these protocols and practices are becoming not only a daily routine, but also our system and industry benchmarks.
Second remain close to our clients and supporting their safe reopening.
A key driver of positive on trends, it's been our clients consistency reopened.
Mexico, we saw the biggest number of closures during the last week of me with approximately 15% of clients closed.
I'd point, you have been pins and we have seen consistent reopens for instance, our exemplary, Kansas or whatever or same store program has supported more than 30000 clients in Mexico, we opened for business by extending predictive measures promotion and commercial initiatives to customers to reactivate their businesses.
Third we are leveraging our direct to consumer channels, while operating unmatched affordability.
Maintain our momentum, we're increasing our offering a returnable presentation magic price points and multi products across markets.
As a result, refillable grew more than 25% during the quarter in Mexico and more than 20% in Brazil.
Eating out Brazilian market to achieve record share ourselves and the sparking beverage category.
Sure gains were not only limit to Brazil, as our affordability portfolio allowed us to gained value share across our territories.
Importantly in Mexico, our home delivery routes Coca Cola regarding our growing more than 30% wear out while our digital trade channels are growing more than 140% year over year.
Fourth we continue to support our communities.
Year to date, we have donated more than 3 million, there's a beverages to medical centers and vulnerable communities importantly, we're collaborating with authorities by leveraging our market spaces and trucks to communicate preventive health measures.
Additionally, we continue to donut coded 19 tests in Brazil.
We helped set up a temporary medical facility in Mexico that has been open since launch late April.
If we continue to protect our cash flow and liquidity, while strengthening our balance sheet.
Our cash control tower enabled us to improve our cash flow from operations by 14% year on year, driven by cost and expense control as well as working capital improvements, we will continue to aggressively targeted savings and to reprioritize topics across our operations.
Notably our cash position at the end of the quarter was more than 43 billion buses.
Even after paying the first installment of our annual dividend by more than 5.1 million vessels, our cash position group.
As part of our priority of consistently returning cash to our shareholders. The second installment of our dividend is intended to be paid in early November and we continue with that commitment.
[noise] aligned with the clear ambition that becoming their clients preferred real time sales and delivery platform, we are accelerating development and rollout of our omni channel capabilities.
Given these tools increasing importance in our anticipated new normal environment.
He wants to take this opportunity to expand on our approach and where we are in this journey.
Our omni channel strategy consists consist of leveraging stay with the our digital enablers to enhance experience when contact with other customers with our customers and consumers.
Densifying our market presence in may and taking advantage, a real time fully integrated platforms and information.
With these initiatives, we expect the first increased sales by adding options, increasing our service window to 24 seven.
Second improve our value offer and customer experience and third enhance our efficiency and productivity.
Currently we are rolling out three major enablers first.
As luxoft for business and automated shot clock and chat bought but enabled order taking platform.
Second our windows portal for digital order entry engagement via an app or website.
And third our order tricky and tracking capability.
Using neighbors, which are fully integrated into our transactional systems allow for seamless order, taking with operating efficiency and enhance customer experience.
Brazil, our most advanced market has become our testing Ron.
Well, then accelerated rollout Whatsapp completed last month to 260000 customers. How much 60000 are now placing a recurring orders.
Initial results are better than expected in terms of volume market share in order to recover.
For instance, the number of chat box Dropbox orders placed geared to you a year to date represent close to 60 additional good sellers on the street.
Additionally, more than 90% of Ciabatta bought interactions do not require the assistance, which human nature.
Shifting our contact deficiency and are we man feature.
Which supports our pre so if they miss a visit.
Is allowing us to recover approximately 25% of otherwise lost sales.
Importantly, through our whom to support them more than 50% of our orders are happening outside work you know, making the 24 seven.
Objective.
Completing the 24 seven objective we have for this purpose and this tool.
Going forward as part of our accelerated pipeline you expect to fully rolled out enterprise, what's up in Mexico, and Colombia during the second half of Twentytwenty.
I like version one of them out.
Moreover, our who just portal is already a reality today in Argentina, and Brazil with light versions in place for Costa Rica, Colombia, Uruguay, and Panama, and we expect to roll it out in Mexico before year end of slow.
In summary, I am optimistic about the way, we continue to transform our organization and doing this and innovative capabilities I am confident that Coca Cola FEMSA enjoys a resilient profile the right sort of talent and the right capabilities to continue navigating today's dynamic gold at 19, driven environment and most importantly.
To see to succeed over the long term.
With that ill now hand, the call over the constant team.
Thank you John and thank you all for joining us once a day earnings call I hope, they're all all of your safe in your families were also safe and healthy.
Extend out or divisions highlights for the second quarter.
In Mexico, where topline decreased eight <unk>, driven by 5.8 volume decline and I'm favorable price mix.
These effects were partially offset by repricing actions implemented in March and June revenue management initiatives.
Importantly, we continue to leverage or strength into traditional trade channel, while reinforcing the value proposition via returnable presentations and magic price points.
These initiatives combined with a relentless board tope sales execution in a reinforced position into direct to consumer channels are providing additional boost your market share momentum.
In Central America, or volume declined 7.4% driven mainly by the effects of cobot 19 contained measures in Panama and Costa Rica.
Lost any good I was complex environment, notably our impressive in performance and what their mind that partially offsetting these markets volumes will be bikes.
On the pricing front, a positive currency translation effect from or Central American currencies into Mexico vessels, mainly offset the price mix headwinds we experienced.
And they result, or top line decreased 5.6% into Mexico, and Central American Division.
Importantly, despite the effects of cobot 19 concentrate cost increases and the depreciation of the Mexican vessel, Rob trading income margin for the division expanded 160 basis points, while they're operating cash flow margin expanded by 200 basis points.
This expansion.
It was driven mainly by declining P.P. cost currency hedging initiatives and savings related to our fuel for growth deficiency program that we implemented in 2019.
As well as their operations outstanding job generating additional savings and efficiencies.
In contrast, or South American division to taste, the more challenging overall environment.
Volume through the division declined 9.5%.
Driven mainly by a challenging April resulting from the rapid implementation social dispensing measures and Mark Downs.
Like most book so the world these measures that gradually relaxing, allowing or Brazil, and it would why operations to both positive volumes during June well Columbia improved to a single digit replay.
The other side Unfortunately, what Argentina showed mild improvements during June this market remains very complex as epidemic ads.
Black city structural macroeconomic challenges.
For this reason, we're prioritizing affordability throughout or portfolio, while maintaining a very disciplined approach to costs and expenses.
As was the case from Mexico, and Central American Division or pricing initiatives were offset mainly by price mix headwinds.
These factors coupled with a negative currency translation effect due to depreciation of boasts over operating currencies and good division better top line through declined seven point, 17.3%.
We exclude the currency translation effects are top line would have declined only 8.3%.
Under this environment to divisions profitability faced a challenging comparable base driven by her decision to temporarily suspend tax credits on concentrate in Brazil, as a fourth quarter of 2019.
This effect combined with lower volumes on favorable price mix dynamics and currency headwinds treasured margins.
However.
Operable P.T. prices in expense efficiencies, partially mitigate at these effects.
Well that's abandoned our financial results.
Which are the outcome over initiatives to strengthen the balance sheets and financial position.
Our interest expense recorded eight reduction as compared to the previous year.
Driven mainly by or liability management initiatives.
Oh, the tender offer and make whole all the 2023 U.S. dollar dawn.
These effects were partially offset by additional short term debt was incurred mainly in Mexican purchases during the first quarter of the year to reinforces our cash position in the face of the upcoming condemned and we saw a in the middle barge.
As part of our country comprehensive financial result, we recorded a foreign exchange gain of 8 million pesos, that's compared to a loss of 91 million doses business driven mainly by positive mark to market from cross currency swaps that benefited from the appreciation of the Mexican at best So during the quarter.
These effects.
Partially offset by a cash exposure in U.S dollars, which was negatively impacted by the appreciation of the Mexican pest.
As compared to the first quarter of date of the year.
Additionally, we recognize the gain of 81 million Pasos monetary position and inflationary subsidiaries, that's compared to a loss of 36 million vessels. During the same period of 2019 related to Argentina.
As John previously mentioned are controlling net income was negatively impacted by impairments recognized in or other non operating expenses for a total of 903 million Becsey confesses.
These impairments or respond.
Through on two elements, one or is there it's definitely dairy joint venture in Panama as the outlook about operation, but it'd be impacted by the pandemic.
And on the other head or the out Noncarbonated beverage joint venture with the Coca Cola system in Brazil.
I think I think it's driven by changing the business model this joint venture.
So going from a centralized production model to what we envision as a more profitable internalized model.
[noise] finally.
Well the highlight Coca Cola offensive strength, and resilience and which is reflected in its robust liquidity position and strong cash flow generation.
June Thirtyth twentytwenty or net debt EBITDA ratio is 1.2 times and our cash position is more than 43 billion basis.
The company has ample flexibility and it's within our priorities to internet right protective measures, while returning cash to our shareholders.
Accordingly, the first installment ever given it was paid on may fit.
Representing a 37% increase versus the previous years dividend.
Going forward, we will continue leveraging expense controls and efficiencies revaluating be prioritizing immediate needs, while prudently managing or capex to continue strengthening or cash flow for the year.
As we mentioned during the first quarter earnings call. We're confident that we're taking the right steps.
At the right moment.
Despite the fact that we expect the second quarter to be the most impacted we remain confident that are conservative profile and resilient business model will enable us to continue your path towards long term objectives.
And with that ill now hand, the call back to John for his final remarks.
You are very much.
Thank you Constantino [noise].
We are encouraged to see trends moving the right direction.
Despite the significant volatility and uncertainty based during the first half a year.
We are on track to deliver on our strategy satisfying our clients and consumers.
Deploying cutting edge transformational initiatives and leveraging our disciplined approach to capital allocation, while maintaining our solid financial position.
We are confident that we have the right objectives and capabilities to emerge as a stronger Coca Cola FEMSA.
Committed to delivering sustainable value creation for all our shares shareholders and stakeholders for many years to come.
Thank you through continued trust and support.
Operator, I would like to open the call two questions.
And if he would like to ask a question.
On your telephone.
If you are using speakerphone. Please make sure that your me function, it's turned off signals returns.
Again that is star one question and our first question will come from Isabella Simonato.
[music].
<unk>.
Thank you good morning, John Constantino Hope everyone is fine I have a couple of questions first of all Coca Cola mention there is all said they were seeing good lied volumes down a mid single digits proving from what they saw throughout the second quarter Ah Kenya.
Comment on how you seem to perform that Youre territory.
We are says they're gearing indication for July and how you're seeing the performance of each channel and now that Oh crazies.
Well you opened in most countries.
We'll be my first question that second question is can you elaborate a little bit on the beer performance in Brazil throughout the quarter in terms of how you sat solve volumes.
<unk> in prices are throughout the month of the Q2.
And finally Ah you highlighted a lot in the comments right how how strong the balance sheet. He is a which which is we totally agree and actually leverage it's quite glow.
What can be thinking in terms of capital allocation going forward, there or maybe dividends buybacks or or or capex. Thank you.
Okay.
The dog I think what we have seen.
Going and sequentially forward is Ah.
We've seen from March B.
The the beginning of the pandemic April being the worst month out there may be an equivalent a little bit better than may.
In June or overall, our volumes were very low single digits.
I don't really know June we saw at the end of year, but at the end of the month, we saw screen of our markets already started growing being positive versus prior year.
And we continue to see that trend so in in July and looking at where things are is routine continued stabilization and most of our markets and a continued improvement.
So yes, we're working our major markets, Mexico, and Brazil, Mexico continues to improve towards low single digits, Brazil is already beginning to how the second phase of the second month.
Continued growth.
Small market like Uruguay, starting to bank bounce back for us what Im Aalok continues to grow.
In Colombia is a market that looks like it's starting to go from double digits, you know twenties downs to low single digits for July. So we're seeing continued improvement in trends.
In terms of channels.
We were down in me probably too.
We lost about 15% of our client base.
And I'm also that came from traditional trader or true a modern promising jobs.
We're seeing that come back or you see more growth in traditional trade proximity continues to be a very big factor not recovery.
Currently our AR.
Our account base is not down to 50%, we talked about but it's down 10%. So we're seeing continues week to week openings of accounts and so we're seeing you know slow, but the improving trends in on premise.
Most of the on premise channels that have been opened no I've been opened with some signs sort of social distancing requirements. So the capacity utilization than restaurants are on premise channels up and down to about 30% just by regulations at this point in time as we move to abandon it and there's still although opened or not seeing a lot of tropic so that.
As a slow it's going to been slow recovery. So I think you know.
Channels for US is no. The one that continues to grow very fast around all our marketing.
It's the traditional mom and pop store and in each one of our countries. A modern channel is recovering at an initial boom of the beginning in April and minutes it kind of backed off trade.
May June, but its recovering and what we're seeing as most of what we're selling today.
It's really in multi serve packages returnable, no plus or packages as affordability continues to become more.
More important for consumers as what a higher constant Bina mentioned, you're starting to see growth of returnable packages of up to 25% refillable boxes and brings over 20% in Mexico.
But playing a very key role which combines.
Various factors home consumption affordability in years.
For consumers on a traditional trade.
So.
And I think in terms of the beer perspective W. houses for it you know we continued to grow beer and that's Heineken said in there and there are a press release.
What we're seeing is.
Very strong showed gains in Brazil problem, there haven't been portfolio and we're also executing it very well so.
It's very consistent Heineken amounts in the marketplace.
Going forward in terms of capital allocation.
I think we have.
And I think right now you are we have.
Increased our dividend base and we'll continue to analyze what the dividend base looks like going forward.
If there's opportunities you've been doing something a little bit more aggressive with got probably next year.
But more importantly, I think what we're looking at is okay, where are they tend to internal investment capabilities and Returnables continues to be one area, which we're going to continue to invest aggressively them.
But they would maintain us within the parameter that the beep and discussing with the markets over the last couple of years between five of them up and 6% of revenues are which is what we usually because somebody do so I don't think it's going to take us more than that so I think you know what will it be ends in a very good.
Listen.
To leverage this up with an accretive acquisition as we go forward and that's the opportunities emerge.
John would you want to add something to though.
No I I would also want to five nights. So they love for example in Mexico, We're starting well there's two elements on under the channel performance that I think were notably remarkable I would say in terms of the of the radio behaving right now definitely digital channels. So all the digital Chad.
In the markets, where we.
I will have a position there today.
In a series of commercial initiatives or growing triple digits and that is something that we will continue to see.
It's a natural it's a natural progression of chattel behavior and channel mix going forward and we continued to be much more competitive that'd be fine.
Execute and implemented more capabilities along the lines of the digital club channel growth on one hand, and then on the other had we're seeing a resurgence upper home channel home delivery channel in Mexico and delivery channel in Mexico has grown.
30%.
I think it's its an interesting discovery for US now that we have much more digital capabilities and we can enable that whole market channel more to the digital get no capabilities. We believe it was interesting opportunity for growth there with an enhanced portfolio versus what we've done.
Historically.
And and currently in Mexico, just to give you an idea we had a route thousand home channel routes and we are aggressively expanding that with a.
In addition of finalizing this year the 1500 home delivery channels. If we if we can so that's an interesting opportunity there.
That has been cut but has become an interesting discovery.
As you know our consumers have changed their consumption occasions and moved much more into into home, so pretty bad and I think that's an interesting angle that we would like to comment and and all the beer performance as John said I mean Heineken covered it figures you know to read reiterate from four.
Elements you need to have very strong brands with great brand equity, which I. We believe I think it has done a great job there you need to have a remarkable execution.
Which we you know we strongly believe that we have a fantastic platform for execution and the on premise channel and you definitely need for the on premise channel to start recovering and and that is what is happening today and as we continue to see a you know reopenings and the on premise chattel, we should continue to sustain that type of performance.
On our beer portfolio in Brazil. So.
So.
I don't know if that answers your question so.
And.
Sarwan if he would like.
And if you find your question have been answered you kind of movie or something like.
Yeah.
Again that is.
<unk>.
It yourself to one question.
Well take our next question from <unk>.
Yes. Good morning, everyone on John you mentioned that Brazil has been kind of advanced market testing well.
I was hoping you could expand on that I don't know related basis.
Have you engage chat box whatsapp and other digital order.
Taking tools to make sure that you're better market.
As opposed to just the better order taker.
Okay.
Sure Thanks, Carlos and how you do.
Yes, Brazil, and I was trying not to be the most important the part was the most advanced Mark what we have right now and I would say that.
Behind them as Argentina, and closely behind them as Mexico, as we continue to roll out.
But oh, yeah in terms of what we're doing we have various tools to chat box is one of them, we can and ER and taking orders there I mean, we're up to about 80000 accounts right now I mean.
We were up 116000 customers and chat bots, and Brazil, where we're targeting 250000.
But what's really amazing about this is in the first of all.
We're getting most of the orders coming in on sort of working working motors working times, where he worked on or four times.
Secondly, you know, it's even coming in on the weekends. We chose to me up you usually very poor service on so I'm, not saying, they're developing more markets and becoming more available.
In terms of the adoption rate that we have you know our adoption rate is probably 300% more than what we thought it was going to be.
And does that is something that is extraordinary service income you know in terms of customer centricity.
We're adopting the so you know very fast in Ah.
You are extremely extremely satisfied with what we're doing well.
To that and we also have what is a are you know or taking order tracking capabilities. So that in Brazil, not only are ordering chat box, but you're also tracking or order.
Real time on GP as and when you will be getting there.
And Ah. So so we're putting together a set of tools some carrying that is allowing us much higher customer satisfaction and I do think that customer satisfaction, you know over the midterm and long term not only does it translated into share and preference, but it also translates into equity agreements.
So so as we go forward Douglas no no beans lose a.
These tools <unk>, we continued to balance on these tools.
For example, in Argentina, now on our B to B.
You are old based system also starting plus with my Carlo Libra for Q, our payment systems, which started last month, so were amplifying over the portfolio of commercial tools available to retailers very fast.
And that along with in store execution, we're having with continuous coverage as a cold and continued merchandise and <unk> and are are combining that with her right execution daily capabilities, becoming very very powerful very powerful and.
It's increasingly more powerful since you have these tools in their competitors don't have them yet.
When I wouldn't say, though is that something that's going to be over the world match it overtime, but right now.
The amount of work that has gone into those be acceptance by the consumer in the systems in 18 infrastructure, which are required to have as you know linked to your transactional systems.
These very large.
No I don't know if I answered your questions but.
Well, well and if I can.
If I can piggyback on hold on on the on John's comments got it was I think that you're highlighting something that we.
<unk>, which we strongly believe it but we are a we're definitely not a ball there, but a market developer as you as you pointed out and and achieving that you know that status. We believe is a combination of multiple variables.
Good okay capabilities like the ones that we are exhibiting and testing in Brazil in order for for them to be further expand it I'm not only in Brazil that rolled out as we are in other markets are just the evolution of the very strong basis of execution, all we can not forget.
This continues to be a business all executing the fundamentals and the basics.
And integrate demonstration of that is what we've done in Guatemala, I think that what that might up as you. All know is a they visit the country, where we consolidate it to the two outstanding franchise says that we're not under on Coca Cola FEMSA.
And once we consolidated what amount I think that we have.
Put into place what Coca Cola FEMSA.
It's famous for like understanding the markets.
And the insights driven organization that connect the dots I'm not only internally, but also externally with a customer focus. We then look at the operations from the inside out we see what can be improved internally, our operational model or capabilities people taking care.
Of our people understanding where we can drive efficiencies and improved productivity within or manufacturing and distribution capabilities and and then have a clear strategy that is properly executed in the market just to give you an idea year to date, despite the pandemic Gopal Coca Cola FEMSA, saying what there.
Hi, there has grown 8% versus previous year, we have grown six points in terms of any RTD I'm sure a value versus previous year were broken historical production records, we increased or presale effectiveness like 22 points and we have increased it route.
So market productivity versus last year, 37% that means how many unit cases per truck per hour you put through your system and that is definitely showing in the markets and that is a fantastic example, I believe but what we're capable of doing that then you on the digital overlay.
That we're trying in Brazil, we're consolidating in Brazil, where you are using your capabilities not only to drive efficiencies, but also to drive much better customer service and customer engagement. For example, the order tracking capabilities that we have in Brazil rittenhouse allow for a true.
Additional store insult bioglue to understand the couple of hours in advance at what time precisely the truck is going to deliver the goods. So he has everything ready and he doesn't lose any time normally a couple of people in that and that type of store operating their business. So.
We're doing it's always with a customer focus and in my and and then redefining or processes.
Redefine their architecture digitally to continue to deliver or excellence in operating model and operational capabilities across across the full value chain.
The other today, what would pretend to do is to enhance value, but only for Coca Cola FEMSA, but also for the customer and also for their consumer and and that I think a great example, that is our revenue management capabilities and or price pack architecture, and the depth and breadth of what are the portfolio offering is and working to come.
This is what we're offering so I just wanted to take advantage of your question.
To be able to explain more over full operating model, which is a combination of a traditional capabilities historical capabilities and the digitalization, but we are embarking and right now I believe at the forefront of of the industry.
Thank you.
And Carlos just to add on Latin America in terms of Michael develop <unk>. When you started looking at the the amount of share.
Gains that were getting it and in Brazil also being consistent and they correlate very highly with them the amount of increased customer honest.
Customer connections that we're putting in place and obviously that is servicing the market better and were getting much more availability.
And we're getting better execution, so I think theres, they're all connected they're all connected.
And our next question will come from.
<unk>.
Wow.
Hi, Hi, John.
Being on the ideas with your book real well and my question is though you concentrate prices in Mexico.
My understanding is that the three years worth of concentrate price hikes or the previously granular no over as of July.
In Mexico, but we know.
This is Ben pretty dynamic agreement or.
Obviously, Mexico's would have cokes more defensive markets globally. So I was wondering if you can give us some insight.
So whether or not these hikes might be over at concentrate price.
Prices might increase again in Mexico, or if you're even conversations with overcall at the moment on this matter any color on this would be much appreciated. Thank you.
Oh sure I've got to as.
As you said I mean.
Concentrate increase is part of the.
The way the relationship is built you know it's it's it's it's the way we it's one of the elements that we have important interaction with the Coca Cola company and and that is something that is part of a continuous conversations.
In.
In the relationship indefinitely in Mexico, what I could tell you is that there will definitely be in the into future added concentrate adjustment I.
I would get that a high level of certainty Oh, and and whenever that occurs we'll definitely Oh, you know b b b informing the market and that's [noise].
The magnitude of that.
On one hand that increase that potential increase and the impact it could have on our piano, it's something that we're we're still going to.
Discussing with the Coca Cola company and at the same time.
Especially on the impact of that potentially increase or we need to understand better margins or a combination of multiple variables and we currently have very favorable raw material tailwinds on our and we've done a lot of productivity inside the company, we have a great rather.
In your management practice, and we will rely very strongly on data and analytics.
In order to be fine or price architecture going forward. So we believe that you know there's not necessarily I'd direct impact from concentrate increase translating into margins or if that they've got eventual new Yorkers. That's okay. So that would be my my my answer to your question I think.
Once more in the future, we should anticipate some adjustments in concentrate pricing the magnitude of them and the impact that they buy the out on our business are still need to be defined the situation right. Now is extremely all complex, we have a great relationship where the Coca Cola Company I think it's one of the strengths.
Of the business. We currently are very pleased to see how quickly we have reprioritized initiatives, along with the Coca Cola company and how long night at Justice system, where today.
And everything we have done has been together then communication. So you know we currently have a lot of system wide global meetings regional meetings country need and stuff we share best practices.
And and that is something that's continues so there there there was an acknowledgement of the of the you know the severity of the situation not only in Mexico, but in other markets from the part of the Coca Cola company and it spiked about about healthy dialogue that we have every day.
Amongst us you know.
I mean, we're evaluating many things I mean, we you know overall, we were we would like to have much more flexibility in terms of opening or distribution system.
The red truck to other.
Products like we're experimenting in some places in Brazil that square distribution, that's definitely dependent on the conversations with added the Coca Cola company. So suits, but these are very interesting times right now and and definitely many many many interesting things will unfold in the near future.
John I don't know you want to want to comment on that.
No I I, just think about always you know.
Incidence is part of the relationship and a incidents will be part of the relationship you know from here on part.
And I think you know you know bigger public company.
Right, so very clear on that but it also because color responsibility is very very profound on that so you know knowing where we are in terms of what are the sensitivity of the businesses today, the tremendously dynamic environment that we're finding the how difficult the environments are in different countries. Thank you know, they're very aware of that so.
So I I'd say you know.
It's going to be something we're going to be talking about for incremental no. The relationship and so if it ever answer and I and so you know that's part of the model.
So you know.
Just the way it goes.
No. That's that's very clear that's listed here is that the here that's sort of your your margins in your business will be certainly taking into account or.
If if it ever happen also thank you very much.
You're welcome. Thank you out about it because so much on.
Next we'll hear from Philly.
Gosh.
Thanks, Good morning gone on something about the FSA. Thanks for the space for questions and I hope, you'll get that unless you're doing okay. I wanted to focus a little bit on the traditional channel did have a couple of comments during the call.
Discussing how the channel is reactivating and how close things happened go out.
About the middle of the quarter and things are improving on but I wanted to ask you can focus on the long term consequences of those closures I imagine.
Waller less professionalize shops might not open buttoned up.
Judging autumnal. It fits is something that you guys have explored obviously incredibly hard with carbonated drinks, but I want to exceed theres. If there's any advances given the backlash MPT from the public whether whether those next on exploration of alternative packaging. Thank you.
Thank you for the bank.
Let's see just to give you little bit more in context of from traditional channels.
Like I said, we're probably.
We're probably down 10% in terms of the total company total account base and mountain that.
And that's probably right now 150000 accounts, 70% of those are probably on promise accounts small promise accounts.
The way we see those okay is that your route is gonna be.
Probably have a 10% there we talked about.
Maybe you know 2% of that or 3% of that will not make it back because you are too small to open their undercapitalized and their their businesses over probably on the margin I guess.
What is typically give Latin America and crisis, Okay is that given.
The prices of closing businesses. There's also a surgeon opening up smaller businesses and we haven't necessarily seen that yet, but we expect that to happen, but smaller smaller shops coming onstream.
To offer services investors to where people go out there and try to make a living here in Latin America.
That being said the traditional trade I think one of the things that is happening is if you take away this temporary.
Effect of covert.
You are seeing more and more technology being put into the traditional trade.
Either by what we're doing with Omnichannel capabilities World. What other players are doing to get there as well and so the traditional trade is not as this advantage from a customer service perspective or from that matter from a consumer engagement perspective with their with their neighborhoods. So I think when you look at that that is.
Very powerful state, but okay, and it's a very powerful position for that channel to be yen versus your youre. Your shopping formats in large format model channel stores. So I think over the over the long call.
I don't see that there is going to be a major disruption of the trends that are happening I think from my perspective, we've been flatten out between channels in channel mixes.
Because of what I just told you.
As people continue to be I think one of the fundamental change that we're seeing as people continue to be more at home proximity becomes even more important.
As proximity becomes more important and you give the tools through the traditional trade to be able to deliver to the home engage a better with the house and I think they become very very solid in terms of competitors and if you open that up further to have been type of packaging. Okay that you would otherwise fine.
No our modern channels the becomes even so much better for the traditional trade. Let me give an example about that.
We traditionally do not have in the marketplace or in channels Multipacks Mccann.
But what Mexico is doing right now as their offering buybacks or two packs club of Coke and a flavor none of traditional trade. So they can go out there in deliveries to the hot home, there's a slight discount to it but these things that you would always obviously decline in your modern channels are now also being translated to your neighborhood.
Convenience.
The jury rapid convenience so theres a lot that's happening in the channel that I would say is.
Structurally in favor of a channel not necessarily against the channel indicated that trend is something that Doug.
Yes.
If I were.
Looking at the channel going forward that will be one other things up with fundamentally changed my.
Perspective of how the challenging and you're working on future.
And then you talked about the packaging development on paper on paper containers, and frankly, we haven't seen too much advances on that that I've that I've seen.
Yes.
The commitment on on packaging Felipe guys. Thanks said on the you know.
Yes pick paper is definitely a challenge or carbonated drinks.
There's there's definitely opportunity for there for the non carbonated beverages are understanding of the Coca Cola company is extremely active.
On that front, but let us not forget that on Csds, which is a core core business.
We have two very important initiatives.
Extremely.
Focused on first of all is the usage of recycling.
And we cycled progressing and the increasing overtime that percentage of recycled bresson.
As a huge commitment.
Of our business and that continues to be the case, regardless of fluctuations and Virgin breast and cost. This is a commitment for us and we will support the world without waste initiative that the Coca Cola Company has set the objectives that for 2030, we should have at least 50.
Percent of all other PB material.
Using Virgin Gressett using recycled resin.
Sorry.
We're looking at that.
Target as a 2025 not even 2030 in our case and then on the other had.
Whatever biggest platforms that we believe and it started in its core that's part of a core business is that returnable packaging returnable packaging is on is definitely.
Something that is positive in terms of the environmental impact it has.
In the the conduct environmentally friendly conversations that consumers are rediscovering around returnable packages and Ambac Coca Cola FEMSA, it's probably.
The leading company or the leading company in the system in terms of Returnables on a consolidated basis, a returnables represent 35% of our CSB portfolio.
In Mexico, we usually F 35, but under the pandemic.
We're seeing it increase up to 45%.
And in Colombia, Argentina, otherwise, we're on a 30, Brazil were lagging a little bit behind the growing significantly double digits, 25% or multi Serbs have grown during this period and then on we're moving beyond the 20% or total mark of Returnables, we have a great and solid base in Returnables, we believe it.
We will continue to expand it and it's also important to understand that were very good at it and we feel we're very.
Focused getting better so returnables required lot of water. So we're reducing the water usage on the returnable circuit. The returnable platform. Our turns per bottle are increasing and we have a lot of efforts and innovation efforts behind that we've also moving and breaking some paradigms moving in.
To universal bottles. So we can use a leverage the bottles for different brands. We've used to have for example, a bottle per flavor for brand on return levels now we're capable of by using labels to use the same bottles and expand our portfolio very easily which is better for us.
Better for the consumer and also better for the customer. So returnables is an interesting play.
It seems are not very innovative because it's always been there, but there is a lot of innovation behind the improvement and be expansion of the platform. So that is something that we also want to make sure that on the gets across.
Hope that answers I will start.
Yes, that's very good color. Thanks, a lot of if I can follow up on that how have you guys explored pushing returnables not just as an affordable option, but as an environmental option I really haven't seen at an advertising, but is that something you guys are it's Brian.
Oh, yes, absolutely and Theres Theres up Theres, a big initiative with the Coca Cola company around that.
Returnables is something that younger consumers are discovering I can talk about my my kids are teenagers and you know that now they're starting to understand how returnables work and they at least from an anecdotal point of view a young consumers tend to value will not be environmentally environmental.
Impact that Returnables have which is seen as an extremely positive. So yes. The Coca Cola company is working very hard on on developing communication and raising the awareness of the benefits of returnable packaging beyond affordability absolutely.
Great color. Thanks, a lot of guys.
And we'll take our final question from my fellow rats with credit Suisse.
Hi.
Hi, John Hi comes from cannot think thank for taking my question I have two quick questions here. The first one is about your impairment charge and in this quarter I do you have any expectation of furthering that going forward and my second question would be about your initial thoughts about potentially farm income.
For the company if the proposal.
That was published yesterday was approved thank you very much.
How much that I'll take that the first one and I'll leave John for the for the latter question for his closing remarks as we're reaching.
The the our.
As we mentioned the impairment was basically on two businesses that we have especially as soon in Panama, which is a dairy joint venture with the Coca Cola company and on the other hand, our Liao a joint venture, which is a system joint venture and in Brazil on non carbonated beverages and.
Okay. So have laid out would be the only one that we could foresee future impacts going forward as we're moving from a centralized business model to internalize business model. So so beautiful draw you to do understand allow was eight is that is a business where.
A portfolio of non carbonated beverages is manufactured in a central location and then a distributed across the system and in Brazil. After a lot of analysis after understanding the the current.
Noncarbonated beverage, particularly nektar juices on dynamics in Brazil, and understanding our capabilities as bottlers into system, we have figured out the the system in Brazil has reached the conclusion that for some particular trial products get as much better and more competitive to internalize.
Production and into different Butler facilities, which is also the case for Coca Cola FEMSA.
There are still discussions in understandings and strategic Ria definitions of what.
The system could do with the layout of the allow assets into manufacturing capabilities that are there. There's a series of interesting initiatives and innovation.
That might be put out there in into future in Brazil, where now could play an interesting role. So we're still defining that so.
We could see more in the future we have Oh, we don't have a definite position right now.
Of the future and add assets going forward, but we'll definitely informed in due course that is that as a case and then I'll I'll have John I'll talk about the very recent venture reform status. It was announced yesterday I believe.
I'm, sorry, I had fallen off the line. So it was the question just step back around.
Around the pension the pension reform out it was announced yesterday, yes for the matching it got Novanta Mexican government, yes.
Well, we I think first of all its a very very important reform for Mexico.
I think going out there and ensuring that people out there at the out of retirement age have.
A minimum salary or I think it was 2.4 times minimum salary retirement pension or the quantities into those doses about 10000 Boes per month is extremely important as it is a phased in approach over the next three or four years.
Doesn't seem to have a significant impact on our arent costs and.
I think it's just been the enormous.
Initiative in its going to be probably one of the initiatives others. Most transformational in this presents Trent and those presidents.
Term.
So we're all Ford and I think it's something labor embraces private business and prices and the government numbers. So I think it's in past the house and the Congress, the congressmen and senators pretty quickly.
But no I don't think at this point you have any significant impact of this as you know the there is a realization that this the times or am I correct and over the next three or four years as when things.
And payment start being Princeton.
Thank you very much.
Mhm.
And that does conclude todays question and answer question I'd like to turn it back over to Mr. John.
Any additional or closing remark.
Well I just want to thank you all for your confidence and continued interest and Coca Cola FEMSA and as you see Burger company Thats in continues transformation and innovation.
I think what we're bringing to the table today is a very powerful set of portfolio operating model initiatives digital initiatives.
And always keeping our consumer at the center.
And in building our capabilities around all channels and enhancing the home channel as one of those areas that we see increased.
<unk> increased and potential growth from so.
I just like to thank you for your confidence and I'd like to.
I wish you and your families well and be safe and if you have any a follow on questions were here to be able to take them later on thank you all for your interest.
Have a good day.
Thank you.
Thank you.
Concludes today's conference. Thank you for your participation you may now.
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